In: Economics
You are trying to estimate the real interest rate for the mining industry products and proceed as follows. You consider buying coal and gold in equal proportion, spending $1000 on coal, and another $1000 on gold in today's dollars. In 3 years from now, the selling values in actual dollars are predicted to be $1,269 (coal) and $1,235 (gold). Inflation (for coal) is 1.8% per year, for the next 3 years. For gold, the gold price index is predicted to rise in the next 3 years from the current 412 points to 429 points. Compute the estimated real interest rate, as a number, with 0.001 precision. Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) sell in 3 years coal and gold and obtain appropriate cash flow..